Thank you for standing by, and welcome to the OCI N. V. 1st Quarter 2021 Results Conference Call. At this time, all participants are in a listen only mode. There will be a presentation followed by question and answer session.
I must advise you the call is recorded today, Wednesday, 5th May, 2021. I would now like to hand the call over to Mr. Hans Vayer, Director, Investor Relations of OCI N. V. Please go ahead.
Thank you, and good afternoon and good morning to our audience in the U. S. Thank you for joining the OCI MP First Quarter 2021 conference call. With me today are Ahmed Alhosi, our Chief Executive Officer Hassan Badzawi, our Chief Financial Officer. As you've seen, we published our results this morning.
And on this call, we will review OCI's key operational events and financial highlights
for the quarter, followed by
a discussion As usual, we will host a question and answer session at the end of
the call. As a reminder, statements made
on today's call contain forward looking These statements are based on certain assumptions, involve risks and uncertainties. And therefore, I'd like to refer you to our disclaims about forward looking statements. And let me hand over to Jafna.
Thank you, Hans, and thank you all for joining us today. I'd like to start as always by covering our top priority, which is safety, as well as all our employees and contractors to go home safe and every day. Our recordable spot market loading incident rate was 0.26 incidents for 200,000 man hours as of the end of Q1 2021. Our goal remains to prioritize its safety and to reduce our special incidents to 0 and all our special facilities across the globe. Then moving on to our performance during the quarter.
We are pleased that we reported a record adjusted EBITDA, We delivered our balance sheet at a fast pace and delivered our year end net leverage target early by achieving it already at the end of March. This performance was especially driven by the significant and sustained improvement in fundamentals of our end markets combined with our strong focus on operational performance at all our plants And the great execution of our commercial team in capturing significantly higher selling prices as we stick to our commercial strategy and maintain a disciplined sales approach. I'd like to thank all our employees for their continued dedication to OCI and its values. Our sales volume increased 9% to 3,000,000 metric tons during Q1 2021 compared to the prior year. In particular, we had another quarter of strong performance in methanol as we recorded an increase of 27% in owned produced methanol sales volumes in Q1 2021 compared to the same time in 2020.
This was driven by a significant step up in production at OTHI Beaumont and Hy MTN as our methanol facility in the Netherlands continued The extreme cold weather and spike in natural gas prices in the U. S. In February early March resulted in Valentine and OCI's U. S. Plant, But the impact was meaningfully more than offset by cash gains from physical and financial and gas hedges as we saw in our results.
With that, I'd like to turn it over to Hassan to discuss the financial results in more detail.
Thank you, Hassan. I'll briefly cover some key highlights of our financial results as usual, starting with the P and L. Our consolidated revenues increased by 38% to $1,120,000,000 and our adjusted EBITDA rose by 134 percent to a record $452,000,000 in the Q1 of 2021 compared to the Q1 of last year. Our adjusted EBITDA margin also improved considerably from 24% in Q1 2020 to 40% in Q1 2021. This performance underscores the benefit Our diverse stream of global revenues
and
our competitive position on the global cost curve with a young asset base and strategic locations
And with around half of
our total gas requirements emanating from assets with fixed gas price regimes. In the current pricing environment, the competitive advantage of pretty global assets becomes more evident. To bridge adjusted EBITDA from the Q1 of 2020 to the Q1 of 2021, there are three factors I would like to highlight. First, The biggest driver of this growth was the improvement in market backdrop, as Ahmed already pointed out and will be discussing in more detail later on in the call. Selling prices improved across the quarter and the Q1 as well as compared to both the 1st and the 4th quarters of 2020, with increases ranging from around 15% to 65% across our various commodities.
Secondly, despite the impact of downtime in the U. S. And in Europe during the unprecedented U. S. Winter freeze and the result of spike in European gas prices, our total sales volumes also continued to increase and were up, as Ajam mentioned earlier, 9% year on year with sales and production volume growth in both the nitrogen and methanol segments, signifying our continued improvement in operational performance.
Finally, although the prices of our key cost input natural gas were on average higher for the group in the Q1 of this year Compared to the Q1 of 2020, especially in Europe, we made cash gains in the U. S. To the tune of around $75,000,000 to $80,000,000 The total net impact from natural gas outside the gain, considering the negative impact of the higher gas prices, amounted to around $40,000,000 to $45,000,000 In terms of our segment results, I'd like to highlight VertiGlobe, which achieved revenue growth of 50% and adjusted EBITDA increases of 105% compared to the 1st quarter of 2020 and 56% compared to the Q4 of 2020. Vertigo's competitive position improved significantly with European gas normalizing at higher levels, which resulted in adjusted EBITDA margin improvement from 31% in Q1 2020 to 43% in Q1 2021. Important to point out that Pertiglobas completed the realization of the target synergies, both consolidation of our teams in September 2019.
And the commercial performance has been especially visible on the ammonia business, where our disciplined approach to the market has optimized our netbacks and the financial results of the business in this current market environment. With excellent free cash flow conversion, we expect Healthy difference from Friti Globe in 2021 and on a continuing basis. Also highlighting that Methadone's group adjusted EBITDA was also significantly higher in Q1 2021 compared to the same quarter last year due to a healthy increase in production volumes, the continued growth of our fuels business And higher methanol prices, which all combined have offset the higher gas prices in the Netherlands compared to a year ago. Margins excluding EBITDA margins excluding gas paints for the metal group more than doubled between Q1 2020 And Q1 2021 to over 30%, which also represents a healthy growth A healthy margin growth of more than 13% at BioMCN despite the high gas price environment in Europe. Turning to the balance sheet and our cash flow performance.
As a result of our improved performance and record EBITDA during the quarter, we generated healthy operating free cash flow. As a result, we were able to delever a further $306,000,000 during the quarter, resulting in a net debt position of $3,400,000,000 as of the end of Q1 2021. Free cash flow before gross CapEx amounted to $326,000,000 During the quarter, underlying strong free cash flow conversion. Total cash capital expenditures were in the Q1, down from in Q1 2020. However, we continue to guide for $300,000,000 in total CapEx for the full year.
We have achieved substantial improvements in our cost of debt over the last 2 years, with our recent average cost of debt reducing from Approximately 6% at the end of 2018 to close to
4% today, whilst maintaining progress
on our capital structure simplification and reductions in gross debt. We have consistently prioritized free cash flow for deleveraging to progress to our long term balance sheet target Of 2 times through the cycle, with leverage reducing in just the 5 quarters in the last 5 quarters from 5.4 times to 3 times a day, which is the targets we have for ourselves for year end we now achieved early. The expected strong performance of the business in 2021 and excellent free cash flow conversion will allow us To continue to progress towards our target target capital structure and expect further reductions in gross debt, Leverage and the weighted average cost of debt over the course of this year. Achievement of our target capital structure remains a priority as this will allow OCI the flexibility to consider Exciting growth opportunities in the evolving hydrogen economy as well as shareholder returns in the future. We continue to proactively optimize our balance sheet.
For instance, we recently repaid $147,000,000 Of 5.875 percent bonds at IFCO and $100,000,000 of our 5.25% and 4.625% bonds at MG. This will deliver additional interest cost savings of circa $10,000,000 per annum on an ongoing basis, deliver additional interest cost savings of $10,000,000 per annum on an ongoing basis While creating repayable debt to absorb future positive free cash flow inflows, we also expect a significant step down in the margin of our core €60,000,000 revolving credit facility of at least €175,000,000 bps to take effect in Q3 2021 as a result The deleveraging profile of the group, we will continue to evaluate opportunities to achieve similar objectives and further simplification of our capital structure on an ongoing basis. Briefly, just wanted to also mention that You may have seen the news that we are considering an IPO of 50 Globe, our 5,842 partnership with ADNOC. We can confirm that we have started preparations, and we are in early stages of that process. And we'll continue to provide Update as appropriate throughout the year.
With that, I would like to hand over to Achalad for our market outlook and growth strategy.
Thanks, Russell. I'll discuss our outlook and some more exciting recent developments and achievements in our ESG strategy. Valens Oci remains positive for Q2 and beyond, supported by strong underlying demand for licensing fertilizers, driven by healthy farm economics And a continued recovery in our industrial markets for ammonia, methanol, melamine and DEF. So I'll start with the outlook for nitrogen markets. Global nitrogen prices have recovered from trough levels reached in 2020 with prices rising 50% in Q1 2021 and Further increases of 15% to 30% to date in the Q2.
These price increases are underpinned by healthy agricultural fundamentals. We have seen a steady increase in corn prices over the past few months to 8 year highs, driven by strong corn imports from China, Declining global corn stock to use ratio and rising farm income, supportive of farm economics and as a result, nitrogen demand and prices. Crop conditions also remained behind prior years amid growth among ongoing drought conditions in key growing areas Such as Brazil and are contributing to the increase in crop prices. U. S.
Corn acreage in the 2020, 2021 season is expected to be 92,000,000 to 93,000,000 acres and with the relationship between the new corn soybean ratio now strongly favoring corn, we expect a further increase in in the next fertilizer season supporting higher 2021 U. S. Nitrogen prices even in the off season. The higher crop pricing is also supporting strong demand in Argentina imports in Q1 2021 were 80% higher year over year and a further 1,000,000 tonnes is expected to be imported over the June to November period, benefiting our operations in Turkey, in particular, as Egypt benefits from a 6.5% duty exemption Higher fertilizer demand in China on strong domestic pulp prices and the shift towards nitrogen intensive corn As animal feed, combined with the recovery in industrial urea consumption in the country is also expected to likely limit urea exports from China in 2021 to a level that is lower than what we saw in 2020. Global imports demand in Latin America, Australia and India is driving a healthy increase in fertility growth to EBITDA volume as well in Q2 2020.
In Europe, we expect strong demand on improved farm incomes and low nitrate inventories across all European producers to drive tighter market conditions into the Q2 of 2021 compared to the prior year. In the U. S, UAN inventories are low, and we believe many producers sold sport in the 1st part Q1 is well into the Q2, resulting in limited availability of stock products. Our U. S.
Midwest operations are therefore benefiting from a combination of higher Our sales volumes and prices in the Q2 following our Q1 production hit, which resulted in lower volumes. To summarize, given low inventories coupled with high feedstock costs in Europe and grain prices at 8 year time, this helps create an environment for a more muted seasonal reset Pricing compares to what we've seen in prior year. Now switching to the industrial side. We're benefiting from a strong rebound in all major global economies and in many We forecast for global growth of more than 5% this year and almost equally strong for next year. This gives us good visibility on our end markets and will boost demand for methanol, melamine and ammonia, which is used which are used in many downstream products across various end markets, including but not limited to, of course, Construction, Automotive, Textile, Class 16.
Furthermore, the recovery in transportation applications increasingly bolsters matter of our products, Keeping market conditions tight. Starting with ammonia market. They've been buoyed by a structural tightening in the last few months as we've all seen with the recovery in Industrial demand as well as gas supply curtailments and outages in Trinidad combined with the fact that on the medium to long term, we see no major Merchant technology capacity additions expected till 2023. OCI's DEF sales in the United States also recorded another Strong quarter in Q1 2021 with truck sales up sharply and the SDR equipped vehicle fleet at a record high, which combined with the higher Energia sales prices In Europe and the U. S.
Market, and we've seen the melamine quarterly contract prices increased to a decade high in the second quarter, which has already been signed up. The Q2 is also developing positively for our methanol business as market conditions also remain tight. We've seen and we've seen and supported increases We've seen increases, sorry, in the May contract price, as announced last week, which provides a good visibility on our sales and prices out of the U. S. In Q2.
And obviously, the European contract price is set quarterly and that was set for all of Q2 late in March. What are the drivers of that? Well, we see demand recovery continuing in the U. S. And European core markets driven by demand from the end markets I Earlier, and then in China, we're seeing high utilization rates on the MTO side, where the outlook continues to be robust.
We're also seeing increases in demand for fuel applications as lockdowns come to an end. I mean, this is an important point that we raised on the last call We think that that area is not still recovered to pre pandemic levels in terms of Methanol and Gasoline blending and then obviously For biofuels blending into the renewable fuels market. 2nd, global inventories in methanol are low as demand continues to recover strongly and new supply has been delayed. I'd like to also give an update on our ESG initiatives since our As we discussed then, Amyli and Methanol are the best positioned products to create low carbon and carbon free food, Fuels and Industrial Feedstocks and therefore can help decarbonize a wide range of end markets and industries. We continue to prioritize high impact Note to low CapEx initiatives that achieve financial returns in a short period of time, while also decarbonize.
As you may recall, 45% of our DHT reduction equipment 0 to low CapEx, including accelerated operational excellence and the switch to renewable energy. Our operational sorry, I'd like to reaffirm our guidance that the operational excellence program, which includes higher off stream times, Less Starts Golf and Better Efficiency is expected to yield at least an additional $75,000,000 per year of EBITDA Annually over the next 3 to 5 years, but we believe this number can be materially higher than we believe this number As discussed, OCI is uniquely able to decarbonize While generating positive cash returns, which is fundamental to our strategy and our core. We are pleased that we've also made good progress and continue to expand our offering of low carb and tonnage to our customers. We recently signed one agreement and one letter of intent with 2 major industrial gas companies for the supply of low carbon hydrogen to OCI Guaman in Texas. Decarbonizing the feedstock supply will be one of the main avenues our customers can benefit from to decarbonize their own footprint and a crucial way for them to achieve their own targets.
This is even more pertinent at OCI Goma, which is strategically located in Texas in the center of one of the largest hubs for potential for blue and green ammonia customers in the United States. It has a large customer base that is not only an industrial feedstock space, but also fertilizers where Texas is also a major corn producer And also future marine demand as we're close proximity to Houston, 1 of the 4 major global bunkering hubs for shipping. I'd also like to highlight our fuel business.
As our fuel business
is growing at large scale potential for maritime and road transport in the future, we've established a new business unit, OTI Clean Fuels, which focuses on sustainable fuels. It includes our current and fast growing biofuels offering of both biomethanol and BioMTB and MTBE, Amongst others, as well as the future use of ammonia and methanol for shipping and other fuel applications as we accelerate the transition to producing blue and green ammonia The use of ammonia and methanol as a shipping fuel is particularly promising in these products are among the best place alternatives to help This sector decarbonizes and reached IMO targets in a cost effective way. Since our March update, several new announcements and studies have materialized in the shipping sector, including Major ship owners, engine manufacturers and ports all are sourcing the use of ammonia and methanol as the shipping fuel distribution. For example, as you may have seen, we're still a leading global shipping engine manufacturer and underscored methanol ammonia as a more credible fuel than hydrogen powered ships. And Merit, one of the largest container shipping companies in the world, announcing the launch of its first line of vessels to operate on carbon neutral methanol in 2023, which is 7 years ahead of the initial 2,030 ambitions.
We see tremendous momentum building up From ESG, this has resulted in many tangible opportunities in almost all our global sites and they're all very and they're all quite interesting And we're evaluating them across all these all very exciting across the global OTI team. This exciting momentum Around our multi methanol business as enablers of the hydrogen economy has also opened our strategic review of the methanol business. Along with the accelerated Strengthening of our balance sheet, market conditions for methanol have improved considerably since last year and outlook remains positive. All this shift All of this is strictly our focus of the review of potential partnerships of strategic rates or strategic nature rather than a full divestment. That facilitates and these partnerships with strategic nature would facilitate an acceleration of our growth for our greenfield business overall.
To conclude, we believe that based on the current visibility on volumes and pricing, we expect a stronger second quarter with higher adjusted EBITDA than in Q1, And we see 2021 is a year of free cash flow growth and deleveraging. We are now seeing the strongest nitrogen and industrial markets that we've experienced in years With the robust underlying fundamentals supporting our medium to long term outlook. Against this background and even more broadly, Our unparalleled asset base coupled with our dynamic team are uniquely positioned to achieve our exciting ESG growth agenda while maintaining our relentless focus as always, our shareholder value. With that, we'll open the line for questions.
Thank
Your first question today comes from the line of Christian Vatsen, Kepler?
Yes. Thank you. Good afternoon, Ahmed, Tasan and Hans. I I have a couple of questions, please. I'll ask them 1 by 1.
First question would be, can you confirm that the tax SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] SPEAKER UNIDENTIFIED
COMPANY REPRESENTATIVE:] SPEAKER
UNIDENTIFIED COMPANY REPRESENTATIVE:] Yes. Thanks for the question.
Yes, thanks for the question. Yes, on the Texas incident or the U. S. Fleet incident happened in February And it affected our production in February. As we mentioned, we had the U.
S. Plant all down during that time, but we don't see an impact in Q2. It is a Q1, though. Okay, great.
Yes. Then second, on your Cash flow evolution, first of all, congrats on that. Given the much improved business momentum, I would have expected Higher working capital negative working capital move. You seem to be mentioning your receivables, but also your payables rather well. Inventories also hardly moved up in the balance sheet.
So can you comment on that?
Yes. So you're saying you would have expected to see Working capital cash outflow given how much EBITDA was generated?
Yes, indeed. I mean better business momentum typically leads to higher working capital flow.
No, I mean, it's a good point that part of it has to do with kind of the fertilizer season. Sometimes in late Q1, as you have some shipments, you get prepayments From investors for Q2, so there is some customers from Q2. So there is some prepayment activity In Q2. And then also, I think the team has done a tremendous job on receivables, and we've The gas impact, for example, Liz, from a gas perspective, we got the gas payments in Q1 as well. So that helps support the working capital in the business.
We also have a very efficient and low cost liquidization program that helps In ensuring the best sort of monetization possible and the reduction of the fluctuation of working capital. That doesn't mean, of course, that we will not continue to see, as during certain quarters, some fluctuation of working capital, Including outflows, but that
is something we manage as best as we can.
Sure. Again, congrats on that. And last and final question, please. Can you elucidate the rationale for the potential Vertigroup IPO? And would that Still then fit with your global strategy of ammonia methanol for shipping, would that be still part of your global network You talked about at your yesterday in March.
Maybe I'll take the first question and then the first half on the second question. On the IT operation,
I mean, there's not much we
can say at this juncture as you can appreciate. However, FertyGlobal We'll become our vehicle for future growth outside North America and Europe given the strategic location of the assets And its competitive cost structure, which becomes, as I mentioned during my earlier speeches, more evident when gas prices are higher Across the globe. And Achal also can comment on the positioning of the assets geographically. I think we think the IPO will help crystallize the value of this underlying business In the future, and that's all I can say at this point.
Yes. I think Hassan touched on it well. And with regards to the Surfing Gold asset base, it was a major part of our ESG Day in early March. We discussed the location of the assets and the fact is that we think it's from a value perspective, it's an interesting platform overall. It has Very good access to the Suez market as well as the Fujairah market in terms of the bunker opportunity for shipping, as you've said.
The fact that we have ammonia plants in 3 different countries is very helpful. When you think about the push towards new projects and new concepts and the fact that we have Very attractive renewable energy potential across the Fertiglo platform. When we have renewable energy, we have On the only plant, we have ammonia storage and loading infrastructure. We have the ability to export and then we have the European import Capabilities for ammonia that OCI has as well. When you think about all of that, all we need potentially is just bringing in and plotting in somebody to produce renewable hydrogen Renewable Energy and giving us a hydrogen offtake on the low CapEx basis.
So we see a lot of growth initiatives that can be enabled by And I feel this type of business, but as Fazen said, we can't get into too much detail.
Okay. Thanks a lot, Ahmed and Hudson.
Thank you. Your next question comes from the line of Tom Wirth from Citi.
Thanks very much. Tom Wrigglesworth from Citi. Couple of questions from me. Just following up from Christian there. Nat Gasoline, if you haven't had the interruption Based on the prevailing prices, what do you think would have been a kind of a reasonable Contribution to EBITDA from that gasoline, just give us a sense of how much that could contribute in 2Q.
Secondly, China exports, I noticed that you're still expecting Chinese exports to be in the 4,300,000 tons For 2021, down
year on year.
Is that are you still what's your conviction in that number? There's quite a lot of debate about China picking up exports. I'm kind of Quite keen to gain your insights there on that. And lastly, On the just talking about methanol, U. S.
Chinese methanol spreads are quite wide. U. S. Price seems quite high and you're quite bullish. So You expect the Chinese methanol price to track back higher at this point rather than weigh on the U.
S. Price? Thank you.
Yes. Thanks for all for the questions. So I mean, not to be able to give you an exact bridge on the dry gasoline side Yes, in terms of the exacerbations caused by the free, but Just looking at Q2 versus Q1, obviously, we see better average pricing, right? We see from a volume perspective obviously with the production higher volumes. And I will say that in terms of the gas gains that we said that $75,000,000 to $80,000,000 net gas gain, not that much of the gas gain was in net gasoline.
So that gives you a little bit of a sense around Q2 just directionally, but wouldn't be able to comment too much further on that. Your second question trying to keep track of this year was around the Chinese export. So I mean, As discussed briefly in the prepared remarks, I mean, it's the technical urea demand that we're seeing continually step up with the industrial activity recovery in China. It's the ag demand in China. I mean, one of the major drivers of this recovery in the ag cycle And then the Chinese corn buying we saw last year and we anticipate even higher than significantly more Chinese corn buying this year, but also a change in approach from a demand perspective For nitrogen, because as the feedstock with the trade war that we saw during the prior administration, Soybeans, which is a major export from the U.
S. To China, started getting replaced with the use of corn. So Chinese are going to be looking to It's 5 Northpoint, which is more nitrogen intensive. So we think that that's another area of latent demand that's going to be helpful as well. And then lastly, India is still going to be highly dependent on China.
I mean India needs to import several million funds By, I think it was 4,000,000 or 5,000,000 tons by September, right? I would say, it's 1,000,000, I'm sorry, by September. So they're going to have to take a lot of this tender that's going on right now, but they're also dependent on their plants running well. And we've seen some issues in start ups in year to date On the Indian side and we're reliant on their domestic production, domestic production hasn't been doing so well. And so we think China is going be there and to fly the Indian market as well.
So overall, we do think that this year will be lower than Last year, in terms of exports, we'll see we're still kind of not yet halfway through the year, but a lot of favorable demand side drivers behind that. Your last question, I believe, was on methanol and the spread between the U. S. And China Mark, I mean, we've seen that for some time. Obviously, we have new capacity coming online in the Atlantic basin, but we've seen continual Kind of start on the Trinidadian supply side.
So we've seen That's and guidance from some of our peers around production rates fluctuate, and that's a major part of the Atlantic basin, which has caused the need for tons to flow into the Atlantic basin at times To satisfy those higher prices. So I think it's partly that and it's the timing of new starts, which we think The new capacity addition probably comes online probably later in the summer rather than earlier in the summer, Just given what we're seeing in activity on the methanol side, but and also usually we've seen kind of start up. And then also we see on the Chinese side, yes, Chinese prices are a bit above the marginal cash cost floor despite coal going up, but It's still a long ways away from the affordability rate that people are able to pay for on the MTO side. So that looks We see kind of healthy demand on the MTO side with the forward curves on Holosens continue to look robust. That gives us some more conviction The ability for Chinese prices to stay supported, but we do need to just look at this lumpy supply as it comes on to the global markets and We're hopeful that the demand continue to can continue to absorb that in the demand we're pursuing.
Just one more follow-up. Do you think it's possible that there's enough optimism around crop prices and the strength that you've indicated towards Next season as well in 2022, the potentially the producers of nitrogen fertilizers will resist any summer low in prices?
Yes, I think that if there's going to be a year to see that, I mean, this would be the year. What we've been seeing was a very Hi, Mark. We just haven't seen here both for urea as well as UAN, a good run here on ammonia that we've seen in the The inventories are haven't been this low in a long time and you have corn at a high level and we're seeing even demand for We've been hearing it's quite high. So we think a lot of demand will occur. We've seen some cooler weather in the U.
S, which has pushed out a little bit of what we expect from the germination of plants, so we think that side dress can be Pushing extended into July. So you can you see that the backlog into Q3 rather than stopping in Q2, which is very helpful. And There's not a necessary reason that you have to have a big reset in price and we think that it could be much, much more muted versus prior years And I'll have to offer that up. And on the European side, I think it's similar. We're already seeing good AN prices in the market and kind of on The CAM side, we're also pretty hopeful that particularly with the higher European gas price we're seeing now That we should see, you did in little decreases because people are looking 1 year out, Farmers are looking 1 year out and are concerned around the inflation crop input prices and staying naked going into next year.
Thank you. Very helpful color. Much appreciated.
Next question comes from the line from Faisal Azner from
Goldman Sachs.
Yes, hi and congratulations on the strong set of numbers and thanks for the opportunity to ask Two questions on my side. Maybe firstly, when we're thinking about the potential IPO and the proceeds from the IPO, given The deleveraging process that you've already achieved so far and how you're progressing, what potential uses for the proceeds You have in mind. Yes, it all takes place. And we're just trying to get a sense of cash deployment options should the balance sheet condition improves. And my second question is really on the supply side of the equation.
I mean, you've highlighted A few points on demand. But when thinking about Nigeria and some of the larger facilities that were supposed to come online, What are you hearing? What are you sensing in terms of their ability to bring that capacity online on time? And how does it impact the market?
Maybe I'll take the first question and the first half and then the second question regarding the new facilities, Urea, I assume Urea facility On the IPO proceeds, I mean, again, very early on in our in the process. We continue at NVE level to be committed to optimizing our capital structure And getting to an investment grade profile through the cycle. So it is logical to think or to assume that In the event of such an IPO taking place, the proceeds from this IPO We'll continue to contribute to this target and just create more flexibility in our decision making going forward, Looking at various avenues of deployment, but the priority continues to be, of course, getting our balance sheet Where we wanted to be comfortably on our other business. I'll defer to you
on the last question. Yes. So I'll just add, I think one of the major things that I think has been a success has just been the decrease in interest expense that has still a long ways to go. We really want to bring down that It's expected that we can achieve EBITDA, free cash flow bridge, which we think can be quite exciting for OCI in specific. Can you repeat the question based on with regards to the India and the Nigerian facility?
What was the question, Zach?
Generally, on the supply side, When looking at some of these newer facilities that were supposed to come online, what are you gauging in terms of their ability To bring that capacity online, do you feel that the market is experiencing further delays? Or do you see these facilities coming online at some point? And How do you assess their ability to impact the pricing in the second half of the year?
Yes. I mean, we're no strangers to delays in construction projects on new builds.
So it's a
So it's a tough process. And as I mentioned, I think previously, particularly in COVID, it makes it very difficult. We continue to see delays on some of these urea capacity expansions. We did see, I think, a plant from online in India That has had issues already and I think the run of London plant probably should be down I think June 1st June And that obviously impacts some of the demand that India is going to need for the next tender or for the ongoing tender. With regards to Iberian capacity, I mean that project continues to be delayed, but we think that now that it's started commissioning, We've heard of some issues on the commissioning side as well as delay in completion of infrastructure, Which means that it will probably be more affecting the domestic market rather than the global market.
But obviously, it's something to monitor, something we look at, something that Our growth our methanol sorry, our FirdiGlobe urea team is actively focused on it and To potentially be a distributor for some of these producers as they come online and has been building up the capability to do it Highly effective and low risk weight placed products in the various Thank you, Marcus.
Maybe if I could just squeeze another question. Just on the partnerships On the methanol side, I mean, are you in advanced stages or early stages in terms of negotiations? Or how can we think about that?
Yes, I mean, I can't go into too much. I can't really comment on that at all, but just say and reiterate what we said earlier, which is We don't see this as a financial policy type investment. If we do entertain something like this, it would be strategic in nature, Where we get value out of that strategic partnership or investment from some of these strategic that can help us accelerate the growth We're already on from an ESG perspective when it comes to methanol overall in fuels. So that's really the focus here. And obviously, if you have any updates, we would suffice it.
Thank you.
Thank you.
The next question comes from the line of Fronk Friedmann from Kempen.
Hi, good day everyone and thank you for taking my questions and congrats with the strong start of the year. I have three questions. The first one is on VertiGlobe, which was probably your best performing decision this quarter, But you again did not pay out a dividend to your non controlling shareholders. Can you remind us what the total dividend accrual was at the end of the quarter? And can you give us any idea on, Let's say the size of dividend payments for the next quarters.
Then Yes. My second question is on the capital allocation. I was wondering, because you're now at 3 times net debt to EBITDA, Let's say excluding any effects from a potential IPO of Verticlobe, I think you will yes, you will materially go below shrink time frame of towards the end of the year, if the season progresses, yes, as expected, Can you then already pay out or will you consider paying out a dividend over 2021 next year? Or is, let's So the 2 times, very sort of hard target. And then my third question is on the Methanol partnership, more of a follow-up.
I was wondering, do you will you sort of pursue, yes, a sort of partnership Well, you have majority ownership like compared to similar to the Ferdyglobe partnership where you Yes, which allows you to fully consolidate or continue to fully consolidate the methanol business? Or is, let's say, more of the
Thank you for the questions. And maybe I'll kick off with the answering the first two. The first one And then Ethanol, strategic part of your question. In regards to your first question, it's true. It's not obvious in the financials, but We don't give specific information on the a few different events On the dividend extraction, but what I can say is that the free cash flow conversion profile of Fernti Global allows for Very healthy dividends on an annual basis and we believe on a continued basis.
And the timing of that may not be, Let's say normalized on a quarterly basis. So we did take out a dividend, for example, on the 1st April from Portugal, which just didn't appear in the financials. Secondly, in terms of your second question, I mean, it's true. We did achieve our net leverage target of 3 times early. We set the target for ourselves a few months several months ago.
For year end, we achieved it at the end of Q1. So given that we are guiding for Further deleveraging in Q2 and we continue to see good fundamental backdrop And both our nitrogen and methanol market for the remainder of the year, I think the combination of those variables Would indicate that our deleverage trajectory should continue in a healthy manner. We're not giving any further guidance at this point of what the exact number is, But I think it's not difficult to deduce the direction of travel. I don't sorry. And just the second part of your question regarding the 2021, whether we will consider returning capital to shareholders.
I mean, we will obviously again, as we achieve our As we continue to focus on achieving our sort of balance sheet optimization targets, I think all options are on the table in terms of the deployment of our free cash flow. We think the fact that this year and next year are important years in terms of our deleveraging That does give us the flexibility to look at various avenues for our free cash flow deployments.
Yes. And just to answer that last question, thanks, Gaston. Just to answer that question in terms of the form of the partnership, I think Wouldn't we be able to comment on what that would look like? I would say that just generally, We like that with what Hudson and I mentioned earlier and I think we mentioned on prior calls, the fact that we've delevered significantly And versus where we are when we were when we started the strategic review, as well as the improvement in supply demand for methanol We've seen and the continued outlook where over the medium to long term demand continues to outstrip supply. And then 3rd and last but not least is the ESG profile.
We want to continue to have good skin in the game on the methanol side. And we our whole focus is to try to get enough resources and Overall, achievability of creating the value that we think underlies our methanol and ammonia commodities. On the methanol side, like I said, we're still we're in London right now, still pretty much in lockdown. All going to be released in kind of a week or so. We think that the second half of the year should be great for biofuels for our biofuels business that And we think that, yes, things are trending in the right direction overall for metallurgy transportation fuel, for metallurgy feedstock And so that's all the shipping fuel.
So we still want to have a big part of that business going forward, and that's why we gave the update on
Thank you. Next question comes from the line of Frank Claassen from Deutsche Group. Please go ahead.
Yes, good afternoon. Two financial questions left. First of all, on the profits you made on the gas hedge, the €75,000,000 to €80,000,000 You've already indicated limited for net gasoline, but could you roughly break down how much was for Beaumont and how much was for Iowa? That's the first one. And then secondly, given your strong deleveraging, could you update us on how much lower your interest
Yes, I mean, I don't want to go into a detail. I would say just it was had a bigger impact on demand and EFCO rather than Gasoline and Natgasoline, Q2 does look stronger materially than Q1. To put it out between Beaumont and ESCO, we did it, we just provided the net amount across the plant. I wouldn't be able to give you a breakdown Between these 2.
Yes. And on the interest cost guidance, I think we've Similar to what we covered briefly during the last conference call, we continue to guide for Circa $60,000,000 to $70,000,000 lower than 2020 in terms of cash interest, But that excludes debt modification costs, which, of course, will be which we know which, as you know, It was part of last year's numbers, but this year will depend on what capital structure activities we have we undertake in the balance of the year. But in terms of sort of run rate, dollars 50,000,000 $70,000,000 lower. And we still think that this It should continue to decrease in 2022 and onwards as we find opportunities to reduce our interest costs. You talked about the step down in RCF on an annualized business.
We have some collateral bonds, which will also help Eventually, reduce some of our expensive debt to reflect the sort of the profile, the evolving profile of the business as we And reflects sort of the cash flow generation that we're experiencing in this year.
Okay. Thank you very much.
Thank you. Your next question comes from the line of Lisa Denis from Morgan Stanley.
Hi, good afternoon. So congratulations on your very strong performance in the Q1. Two questions. The first one is on UAN. So I mean, what are you seeing in U.
S. UAN markets? It seems that it has been very strong so far year to date, But I also read there's quite some risk for incremental imports from Russia. So just wondering what your expectations are for the Q2 and rest of the year for UAN and what you're seeing? That's the first question.
And then secondly, going back to earlier questions on the divestment of the methanol business, and I'm really sorry for bringing this up again, but what I'm interested is, I mean, what type of partner would be valuable to you? Or in other words, what would you consider as a value added contribution from a partner's perspective, Perhaps something on the ESG side or something. I would be more interested to know what a partner could bring to the table for you and what would be of your interest. Thank you.
Sure. So on the rest of the U. S. Question, yes, we've seen a fairly strong market. We've actually seen inquiries Even this week, we're hearing inquiries on Q3 bids from customers that weren't too far below Where some of the markets are at today.
So like I said earlier, I think low inventories, high Stock prices are getting people concerned around with next year when you're seeing this corn to
soybean ratio looking favorable. Your question on Russia is
a good one. And I think that's always something we have to focus on because of Russian selling into U. S. Markets, but there's a few other things going on, which is, 1, people look at going potentially into Europe still is well, we've seen sanctions on the Belarusian production side affecting the supply and demand of UAN into Western Europe. I think Right now, it's not a very high period of activity for UAN, but we think that there's still some movement upwards on the European side for UAN, Which bodes well for that arm between Europe and the United States.
And we've seen Russians produce a bit more urea instead of UAN And have a stronger domestic market in the past. And we've seen obviously the Reliance players, as I mentioned, So Anshrin, Adadi and Yuan coming in as well. So there are a few different elements at play. I think One advantage that U. S.
Producers have is the infrastructure that is in place in terms of storage and railcars and customer relationships and All the above, I think we have to continue to watch for the Russian imports because they do and they have come in. But we have to look at the global by demand balance and also the what the starting inventories will be this year. I will also mention that we do think That there is a that there are more turnarounds in this nitrogen market in the U. S. In 2021 Versus 2020, we think a lot of turnaround has been delayed, which is supported for the SMBs, particularly during the low period.
So that's on the UAN question. Your second question was regards to the partner. I mean, I think it's all in phases would be something that would be strategic in nature that adds value, not financial. In terms of giving detail around it, I mean, it's one where if you were to think about the trajectory that we talked about in the last few months that we want to Key, which is low carbon feedstock to get A very valuable decarbonized methanol is an industrial feedstock and is a few like we're seeing on the ammonia side as well. We think that's very powerful.
As I've stated A few times, many companies globally are getting the push towards setting up decarbonization targets. How are you going to reduce your carbon? You're going to go back to where is the carbon produced and it was often produced very close to hydrocarbons, which are natural gas, Oil and other feedstocks. Our ability to have lower carbon feedstocks like we've now shown that we've been able to do In OCI, I think, green ammonia, in our biomethail business globally and in our blue ammonia out of Texas, It's about finding and putting the puzzles and pieces together to get further distribution downstream and or lower carbon feedstocks upstream So that we can accelerate our push and create that shareholder value and monetary returns while decarbonizing and achieving our targets for the balance of the decade.
Thank you. That's super helpful.
Thank you. Your next question comes from the line of agent Raimondo from Berenberg.
Hello, good afternoon. One question concerning the Bowman plant in Texas. So the volumes you indicate for blue ammonia imply 100 So can you comment a bit around the timetable and when you expect to reach such capacity? And third question, how should we think about CapEx from 2022 onwards?
Yes. So with regards to the blue ammonia capacity, obviously, we're very excited to now have the ability to have a decarbonized ammonia product for The food, the fuel, as well as the feedstock chain. Our goal is working with our customer base now that we have this offering. Like I said, it starts later this year to be able to convert 100% of our production into blue. We're figuring out How to get that distributed downstream and doing it in a way that's a win win for ourselves as well as for the customer base.
So we're working on it as we speak now with the customers. And most importantly, we have that we have the ability and the option to switch into blue ammonia, Which we think is on a relatively attractive basis. Okay. And then The other question was with regards to CapEx. Yes, so your question was what, sorry, on the CapEx side?
Yes, that could have an impact on 2020 CapEx.
Just one
example of No CapEx initiative. We'll load the no CapEx initiatives to decarbonize while kind of achieving financial So like I said during our ASG Day, we're looking at that big portion with the low hanging fruit. This is one of the areas and an example of some of the low hanging fruits that we're looking at to decarbonize and significantly reduce our footprint while also creating value without having a big CapEx outlay.
Yes, understood. And second question on the nitrogen supply. Do you see room for Iran to have a Under participation in exports or you think the bulk of this growth is already behind us?
So we've seen Iran continue to participate in various markets on the U. S. Side. So they've not This year, I mean, we just reallocated some of where the product was going. One of the areas, they were going previously with India, but they've now gone to many Other markets as well.
And as we said before, I mean, we're going to see how things play out on the running side. We think that It puts you all in a very tough position when they're exporting and they're having to effectively block prices to use satisfied measures to get product From their source to a destination that doesn't want to do this in a straightforward way. So we think that to the extent their ability is able Not just for a fraction of the marginal cost, which is highly big done, not only on the Aerea side, but also on the ammonia methanol side. We think that Their ability to be a competitive player and actually sell well above marginal cost and where the price is With those well for the 3 major products that are produced out of year round that we also completed. So these discounts that we continue to see on the reassigns dollars on the metal side, sometimes even larger.
Things disappeared. And then it's questionable in terms of The amount of additional incremental volume that could come from that because they do still suffer from the gas shortages in the winter and the fact that some of these plants were built using Non fusion technologies during periods of sanctions as during earlier parts of the last decade. Okay. Thank you.
Thank you. Your next question comes from the line of Ritin Patel from Exane.
Hi all. Thanks for taking my questions. Just 2 left. Firstly, on the markets. And you spoke about India earlier in terms of demand and supply balance.
But just curious if you could provide some insights into the current tender And how you think that will impact nearer term pricing? And then secondly, Just following up on the 1st globe IPO, and I appreciate you're limited in what you can say. But in terms of the remaining business, Methanol side, how does this impact your thinking on further portfolio transformation in the U. S. First of all, your assets or Europe going forward?
That would be helpful.
Yes. I mean, the office has just been kind of published, I think, in the last few hours on the India tender. And we're going to speak the counter off this process. It's a little bit too early to speculate. What we do think is that India does need to take the time to report 1,500,000, let me take 1,500,000 tonnes via the tender roughly.
We need to come back every 90 days until September to make sure that they have enough products from the market. They went for a longer shipping period, which is indicative of needing to More funds going, I think, closer to 50 days versus close to 40 days that they've done in the past, which really cleans up May And June after some of those lagging funds and some producers have we think sold into other markets in the meantime While there have been delays in the tender, we think that this will be a good way to kind of continue to We suck up the supply out of the various markets, including China over the course of the summer. We also think Latin America will continue to need to import Product Australia as well the next few months. And as I mentioned, we're excited particularly with what we've been seeing in Argentina is quite strategic So us in that we've been benefiting from a duty exemption that allows us to be very well in place for addiction Obviously, the next 1.5 months still has the U. S.
And European markets still applying urea For Top Chef, it's Idra. And we're seeing and we've seen over the last few years, you may have seen continual Focused on urea, we're actually, I think July, Q2, or about June, where there's that concern again, what I mentioned on the UAN side, There is that concern again about having enough products in the U. S, which is and it'd be an interesting year to see how Merlin performs relative to global markets, but The U. S. Is also quite a lot of inventory, and I think it's surprising to see the fact that it continues to be the highest price In fact, we're stretching into May and potentially into June and Brazil is raising up with it as we speak as well.
So we'll see how that unfolds.
Can you please bear your second question?
Yes. No, it's just on the main business Following the IPO of Ferroglobe, the fertilizer assets that is, has this impacted your And thoughts on further portfolio transformation, are you selling further assets in Europe or the U. S. What were you sort of on the partnerships?
Well, I think Hassan kind of went through some of the rationale behind the IPO itself for TGLO. Our strategy and focus and kind of what we're looking at globally as a team continues to be focused on the same thing, which is Operational excellence, getting the most out of our assets and in fact, we had a 30% increase in methanol volume, like the downside of the crack gas in Q1, Those wells from what we see for the remainder of the year on the methanol side, and we want to achieve that. With regards to the fertilizer assets, we also still see further optimization Potential in the 2 assets we have outside of FERC growth in terms of both energy efficiency and all game time. Then very related to that and it's hard to decouple is our ESG focus and the different opportunities there. Obviously, operational excellence is part of that.
But like I said, almost every single site globally has multiple initiatives being reviewed that are either upstream related to decarbonize or downstream customer related. So we're seeing a lot of different avenues To decarbonize, they are very interesting on the demand side and on utilizing our existing infrastructure side. When you say in terms of divestments, I mean, we're going to continue to look for value creation opportunities. We like the fact that we can we want to demonstrate Our potential for in this type of environment is we delever and we get our operational excellence up, Decreasing the cost between EBITDA and free cash flow more and more so that we have more capital Within the OCI system and have to decide how we allocate that capital across the different initiatives. And we're always looking for opportunities to consolidate.
Our anticipation with this vertical IPO, we don't lose the fact that there is So the strong OTI presence in the ecosystem with Firsigold to allow for continued consolidation, what is still a fragmented industry that Entirely consolidation relative to other commodity chemical markets. Great. Thanks.
Thank you. The next question is from the line of Kaitan Udeshi from JPMorgan.
Hi, thanks for taking my questions. I had two questions. First is, can I confirm when you say Q2 adjusted EBITDA higher than Q1, are you including the gain from natural gas in that comparison? So are we talking about Comparison versus Q1 with natural gas gain included when we talk about Q2 higher than Q1? That's the first question.
The second question was A bit more technical, if I may. Within your Middle East business, especially in Algeria, There is an arrangement where the minority holder in the Algerian JV He's paid higher dividend than the proportionate share that they have in that business. How should we then think about the Economic interest of OCI overall in the Fertigloeb because I think it's fair to say you have a share in Forticlobe, but within your share, there are also minorities who Might have high economic increases given the structure of the dividend payments.
Yes, I can take that. Regarding the first question, yes, the guidance, I mean, we're not going to be cheeky. The guidance is it actually includes The net gas gains, so that's included. We're going to we believe we're going to be having a better quarter in the second quarter on top of that. So Again, that's a reflection of the backdrop of some of the best markets we've seen, and we are positioned with a unique profile of assets That has some of the best cash flow conversion, youngest fleet of assets in the industry.
And despite that, we still have opportunities from based on manufacturing excellence program to find further efficiencies and volume Step ups. I think we've demonstrated even in the sort of the in At lower price conditions, we were still able to generate free cash flow and improve our leverage profile In the last 2 years. So now with the uptick in the market, it's a complete it's a very different story. On the same question, yes, I mean that's something that's been very it's known to investors and analysts, and we always discuss In all of our meetings that you pay a very the UK, we distribute or the net economics in Algeria At about just under 40%, our share, the way we look at it, it's kind of like looking at the gap, The very low gas price
and the fact that
there is no income tax in Algeria, so we kind of look at it on a consolidated basis. You see whether you look at it as a Form of income tax, whether you look at it as a form of a normalized gas price, this is kind of it's structured as just a higher share of dividends. And yes, I mean, we are we do have partnerships in our ecosystem concentrated in Fernti Globe, and that's why we always guide to whenever there are distributions, there's going to be minority interest leakage. It can be lumpy at times depending on the timing of extraction. But as the particular business It's now having an excellent year, and we highlighted in the Q1, naturally, there'll be Some higher leakage associated with that because we're going to be extracting very healthy dividends going forward because this is a business with a cost structure That has very interesting free cash flow conversion possibilities.
As prices go up with a fixed gas cost regime, It's uniquely it keeps improving on the on terms of the cost curve.
Thank you.
Thank you. Your final question comes from the line of Roberto Cassoni from Otis Capital.
Yes. Hi, good afternoon. Thank you for taking my first question. And most of my questions have been answered already. And I have one which is possibly related to the Q2.
I mean, it's still unclear to me What Q2 is going to be developing like? I mean, if I just look at the nitrogen, ammonia and urea Price, I mean Q2, of course, is going to be much better than Q1. Actually, it's possibly the easiest comp next This quarter in terms of sales. What is not clear, particularly ex Ferdy Globe, is how The natural gas price would impact. You say that you hedged the natural the nat gas And this should be included as a gain in Q2.
This is something I can actually don't understand. So what happens when the hedge It's not there anymore. I mean can you elaborate a bit better how should we see Q2, particularly ex Ferdy Globe in terms of margin expansion, ex also the hedge, if it's possible? Thank you.
Yes. So I mean, fair question. I mean, just with regards to the engine, the engine gain that we had that happened as referred to in the last Question was a Q1 event that we had pretty strong winter hedges in place. So the event that was hedging was not in place here in Q2 Yes, it's the effect that we had in Q1. And the team did a really good job of being able to We sell gas at times and also monetize financial derivatives at times to generate a net gain of $70,000,000 to $80,000,000
Okay. And that game was mainly in the U. S, not in the U. S?
That game was only in the U. S. Okay. So You had a $25,000,000 hit relative to last year on higher gas costs in Q1 that we that are in the results
Right. So we can say without the hedge sorry for interrupting, but without the hedge, U. S. Would be EBITDA single digits In millions?
Single digit?
Yes. I mean, if you have the €70,000,000 €80,000,000 €80,000,000 Impact positive in the U. S. And EBITDA in the U. S.
Was EUR 80,000,000 in Q1. I'm talking about nitrogen only.
Okay. That's where I think you're confused with. You're saying nitrogen, Eva. I'm saying this is across methanol and nitrogen including
Okay. Okay.
That is where okay.
The 3 is flat. It was a net gain of that amount.
Now it's clear. So now having clarified it, how should I expect I mean, should I see margin expansion ex VertiGlobe in Q2 then?
Yes. I mean, generally, we're obviously, there is volatility. As we said, with the price environment we're seeing today And the fact that we're still able to sell with some visibility on Q2, yes, we should see margin expansion I'll start at 30 Globe in Q2. There's been obviously a run up in gas prices the last few days in Europe. And I think you mentioned earlier, that could result in some lower margins.
But overall, we see that as a positive. You know, we've captured one of the questions from Citi earlier. One, some of the people probably think about the summer reset. When you have higher gas prices, you have 2 of our 9 plants experiencing the higher gas prices, But also all the European plants, Eastern European plants, the ones that are less efficient, paying those higher gas prices, pushing up the gas price floor, which we can go both for the broader And this drives overall our guidance for overall business for a higher Q2, including gas gains in Q1,
That's clear. That's very clear. Thank you. Thank you very much.
We have no further questions if you wish to continue. We have no further questions on the telephone line, sir.
Thank you everybody for joining our call and we look forward to the next one.
Thank you. That does conclude your call for today. Thank you all for participating and you may now disconnect.